Ed Whitacre's Disingenuous Photo-Op

Unelected, government-appointed GM CEO and Chairman Ed Whitacre wrote an editorial timed to appear in this morning's Wall Street Journal in conjunction with his CNBC photo-op showing him repaying $5.8B of government loans to the US and Canada.

It was amusing to watch CNBC anchors congratulating themselves and reporter Phil LeBeau for an interview with Whitacre that, honestly, would have been best if it had never occurred. Talk about free advertising while misleading the public! Just another benefit of crony capitalism- more on that a little later on in this post.

It's a truly disingenuous staging of something Whitacre wants us all to cheer, but, in reality, should remind us to be disappointed and angry.

Elements of Whitacre's Journal piece appear below in italcs, with my comments following.

Today, General Motors is announcing that it has made a payment of $5.8 billion to the U.S. Treasury and Export Development Canada. We're paying back—in full, with interest, years ahead of schedule—loans made to help fund the new GM.

Our ability to pay back these loans less than a year after emerging from bankruptcy is a sign that our plan for building a new GM is working. It is also an important step toward eventually reducing the amount of equity the governments of the U.S., Canada and Ontario hold in our company. Combined, these governments hold a majority of GM's equity, and we want citizens to know how their governments' money is being put to work.

Too bad, Ed, as Gerald O'Driscoll recently wrote in the Journal, that citizens of the countries didn't get to allocate that capital via free markets but, instead, were forced to watch their governments engage in crony capitalism. Why bother with the photo-op Ed, when all you have to do is convince Congress and the administration to continue supporting you?

Oh, and that union which was basically paid off, while shareholders and creditors got stuffed. Did you agree with all those actions, Ed?

Wait, you spent your entire career in one of the most heavily-regulated industries in history, telecom. You're used to fawning on your knees to government officials.

Following the initial crisis and the bankruptcy of the old GM last year, a new GM has emerged as a leaner, stronger company. We have eight new members on our 13-member board of directors. Twelve of the top 13 senior leaders are new to GM (from places outside the industry such as Microsoft and AT&T) or in new jobs at the company. You can feel a renewed energy and commitment at GM. Our new vehicles are generating sales, and these sales are allowing us to make investments and create jobs.

To support our steady sales growth at Chevrolet, Buick, GMC and Cadillac, in the past nine months we have made investments totaling more than $1.5 billion at 20 facilities in the U.S. and Canada, restoring or creating more than 7,500 jobs. Just this morning we announced that we will make a $257 million investment in existing plants in Detroit and Kansas City, Kan., to build the next generation of our award-winning Chevy Malibu.

Gee, Ed, aren't you forgetting a little thing in economics called "opportunity costs?"

Who are you, or any government official, to say that the alleged new 7,500 jobs at GM are better than letting capital markets create jobs?

Maybe if GM were allowed to go through a normal bankruptcy, and another firm had bought and reorganized various divisions of the old GM, all that borrowed Canadian and US money may have stayed in the private sector and funded other, better jobs with new firms.

My brilliant boss at Chase, SVP Gerry Weiss, used to remind us that the real value of informed resource allocation across the bank's many businesses was realized by transferring money and employee counts from the least-efficient, money-losing units, to more efficient, more profitable and, typically, much faster-growing units. The major delta in the bank's performance would result from this move of resources from extremes. From extremely bad uses to extremely good uses.

It is just this process that is frustrated by crony capitalism such as we've witnessed in the GM bailout. Instead of the resources wasted at GM being freed up to be used elsewhere in the economy, they were allowed to remain in place, then more capital added, from taxpayers, as a free equity injection. Free to GM, but very costly to taxpayers and the economy in general.

Did you ever consider that, Ed? Isn't that an unseen, hidden, but very real cost to our economy?

What about the lasting damage to the US economy by having global investors watch us bail out a failed company in an old industry with borrowed and printed money? You don't think that will have lasting negative consequences for the US economy in terms of government borrowing costs, or the ability to continue borrowing in global markets? Will investors really want to invest in a country, knowing their funds go to overpaid union workers at a has-been, failed auto company?

Aren't these also hidden costs of the GM bailout?

Of course they are. This is what O'Driscoll highlighted as the downside of crony capitalism. Economics is about efficient allocation of resources in a free market of true prices, not politically-motivated bailouts of old, commoditized industries supporting bloated payrolls of highly-paid, over-paid union workers churning out largely unwanted vehicles. That's how GM managed to go bankrupt, Ed.

If you can't understand the notion of opportunity costs and efficient resource allocation, Ed, maybe you're not the right guy to chair a major US corporation. Then, again, since GM is, in essence, now just another government agency, I guess you probably qualify as a government bureaucrat, after all those years being just like one while running a Bell System operating company.

As a global car maker, GM is investing in energy solutions that will increase efficiency across our vehicle lineup in the United States. For example, we are adding a third shift and 1,050 jobs at our plant in Lordstown, Ohio, to build the fuel-efficient Chevy Cruze, which has been a hit in every region where it has been introduced. An Eco version of the Cruze, with a 40 miles-per-gallon highway rating, will give customers the fuel economy of a hybrid without the high price tag.

This year, we will introduce the Chevrolet Volt, which can provide up to 40 miles of electric-only, emissions-free driving, backed up with a range extender (a small engine) that can keep you going should the battery run low. Developing the Volt has led to new investments in battery labs and battery manufacturing and it has put GM, and by extension the North American car industry, in the front row of the global electric vehicle race.

Ed, I can't help but think that dozens of smaller, truly electric power-oriented startups would have done much better on this sort of product and component development than you will at GM.

After all, as a conventional car maker, GM failed. You guys couldn't even make money on gasoline-powered vehicles.

Now, with absolutely NO risk premium, but, instead, sweetheart loans and equity injections from Washington, you expect all of us to believe your crew can profitably do in alternative fuel vehicles that at which you failed in a technology in which you had nearly a hundred years of experience?

C'mon, we're not that naive. Capital markets never would have funded GM doing this. That's why you went broke. Instead, many smaller, more innovative, hungrier firms convinced the private sector to invest in their ideas.

You and your company simply mozied up to the public trough and began chowing down on low-cost taxpayer funding.

We still have a lot of hard work ahead of us, but we are making real progress toward our vision of designing, building and selling the world's best vehicles.

Nobody was happy that GM needed government loans—not the governments, not the taxpayers and, quite frankly, not the company. We believe we can best thank the citizens of the U.S. and Canada by making sure that their investments are hard at work every day, building high quality, fuel-efficient vehicles our customers can count on.

Ed, I believe you can best reward citizens by immediately selling the company into whatever pieces private sector buyers might want. And simply close the rest. True, the government-run faux-bankruptcy of GM, to the benefit of unions, and detriment of legitimate creditors, was a mistake.

And we can't really undo it entirely. But we can still terminate it earlier, at less opportunity cost to our economy, by doing now what should have been done over a year ago. Force GM off government life support, force it out into the private sector whole or in pieces, forcing taxpayers, the federal government and, most of all, you, Ed, to see what a discount to the government's bailout price is taken on the IPO.

Now, wouldn't that be eye-opening? Somehow, Ed, I doubt you'd be toasting that event.